David R. Henderson  

The ObamaCare-Induced Shift to Part-Time Work

Keep Calm and Read Bastiat... Daniel Goleman's Attack...


The title of this post is the same as the title of a post I wrote in January 2013. Why do I use the same title? Because of this statement from Brad DeLong:

I mean, some employers are going to drop hours below 30 a week once the employer pay-or-play hits. But we won't see that until the February 2015 employment report, and there is no reason for employers to start that eighteen months in advance. It isn't there in the data. And nothing would lead anybody to expect that it would be visible in the data right now.

It's a reasonable problem for Brad to pose. And it turns out that there is an explanation for why employers would be adjusting this year rather than waiting.

I explained in January why there is a reason to see a shift to part-time employment now. Here are the relevant passages that I quoted from a January Wall Street Journal news story:

Even though the rule doesn't go into effect until early 2014, a business could be subject to the so-called employer mandate if, during 2013, it averages 50 or more full-time equivalent employees, according to recently released regulations from the Treasury Department and the Internal Revenue Service.

Many small-business owners haven't yet realized that the way they structure their firm in 2013 could determine their status under the law in a year's time.

The government issued the little-noticed regulatory guidance on Dec. 28. Ms. Turley says she wasn't aware of the rules until a Journal reporter informed her.

To avoid the health-care law's penalties, many employers are considering hiring only part-time employees or deliberately curbing growth so that they have no need to hire.

Of course, in early July, Obama unilaterally, without legal authority, delayed the employer mandate until January 1, 2015. But that means that from January 2013 to July 2013, when a Treasury official announced the change, employers who were paying attention thought that they had to shift to part-time employment this year. I don't know if Obama adjusted the rules so that the baseline becomes calendar year 2014 instead of 2013. But even if he did, that gives employers less than 6 months in which not to worry about having too many full-time employees.

That's the answer to Brad's assertion.

HT to Mark Thoma.

See Megan McArdle's two comments below. Because she follows this issue more closely and carefully than I, the probability that she is more correct than me is very high.

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CATEGORIES: Labor Market

COMMENTS (19 to date)
Bob Murphy writes:

And even if you didn't have such an explicit rule, David, surely an employer could reasonably think, "It would be a bad idea for me to hire 500 full-time employees today, intending to lay them off in a year."

8 writes:

You can already see the effect. Look at the proportion of new jobs in the retail sector.

Hana writes:

This is anecdotal information, but anecdotal from my oldest child's actual experience. He is working while attending college. In fact he works very hard and currently has three jobs.

Last year he worked at a Bay Area grocery chain (approximately 500 stores). He averaged roughly 37 hours a week. In late fall part time workers were informed that their hours were to be cut and that the new average would be around 24 hours.

As youth are wont to do, he switched jobs, and went to work at Home Depot (for some reason he wanted a night shift). While the pay went up, the hours remained low. Home Depot has strict rules restricting part timers to less than 29 hours a week. From longer term employees he learned that this took place sometime early this year, but that before then part timers typically were able to work 35 hours.

His second job is at FedEx. FedEx loaders and unloaders are split over 3 or 4, three and a half hour shifts. He is given additional hours at FedEx but typically averages around 23 hours a week. Again from conversations with other employees he learned that the hours used to be in the 35 range.

The third job is at the University and is 20 hours a week.

Admittedly it is anecdotal, but at least from his experience two major employers have decided to limit hours below the ACA threshold. The old definition of less than 40 hours a week is a part-time job has been replaced with the new definition of 30 hours a week.

The costs of this shift were not seriously considered in analyzing the impact of mandating this huge labor law change in the ACA. While on the surface it would seem nice to make employers bear the cost, in fact it is employees who bear the cost through shortened hours. The one year delay in the employer mandate will not change the hours. They have already built 29 hour or less work weeks in to their business models.

Brad D writes:

Employer: How can I plan and grow my business if I don’t know what my costs will be because the rules keep changing?

Obama: That’s why we delayed the law – to help you out of a jam.

Employer: Gee thanks, I guess. But what about next year? Can I count on you to do the same next year?

Obama: Well, that all depends. If small business complains that the mandate is too onerous, then perhaps I’ll unilaterally delay it again. Who knows, maybe I’ll scrap it all together.

Employer: You’re really making this difficult for me. I can’t simply adapt my business to your ever-changing rules. Didn’t Hayek observe that the rule of law consistently applied is an essential ingredient to a successful democracy?

Obama: Hayek? Who’s he?

Megan McArdle writes:

This is not quite right. The "full time equivalent employee" is determined by adding together all the hours of your part time employees and dividing by forty, and then adding to the number of your full time employees. This is precisely to prevent the sort of gaming you describe.

However, my understanding is that there's also a one-year lookback for insurance--you have to insure someone if they've worked more than 30 hours a week in the past year, not the next year. So I believe Professor DeLong is also wrong; there are reasons to shift people now to part time.

Megan McArdle writes:

Ah, it looks like the lookback is somewhere between 3-12 months, but employers don't want to take chances.

Hei Lun Chan writes:

Adding to what Hana wrote above, I work for a large supermarket chain on the east coast and we have had a strict policy of limiting part-timers to 29 hours a week. We get nasty emails if even one employee goes over 30 for the week. So whatever the reason is for this policy it is happening right now, not 18 months from now.

Yancey Ward writes:

No one really knows what the lookback period is going to be, or when it is going to start. This is one effect of Obama's unilateral decision to delay it for a year (and it isn't even clear the lookback itself is delayed). In addition, you don't even know for sure the delay isn't going to be reversed at some level. Confusion abounds, and DeLong is just muddying the water in addition to be wrong about the evidence of the laws effects.

David R. Henderson writes:

@Megan McArdle,

Let's not forget to give (dis)credit where due. Brad is relying on Max, and that's always a bad idea. I've tangled with both of them and would be amazed if either has ever had a real conversation with an actual profit-seeking businessperson.

mike davis writes:

Is it correct to say that Obamacare really creates two labor market distortions?

First, an employer who crosses the 50 FTE threshold will have to offer insurance to all full time employees on the payroll before a certain look back period. This creates a discontinuity in labor cost as a function of the number of FTE workers and so creates an disincentive to hire more than 50 FTE workers.

Second, if a worker employed by a firm who is subject to the mandate goes above 30 hours, they are entitled to insurance. This creates a discontinuity in labor costs as a function of the hours any worker works and so creates a disincentive to allow workers more than 30 hours.

(This is probably obvious to the rest of you but saying it this way helps me to understand what the rules really require and, more importantly, helps me understand where to look for the impacts.)

Bren writes:

I love how no one acknowledges the BLS data doesn't show a rise in part-time employment since '09.

Arthur_500 writes:

Anecdotal evidence is incomplete but it isn't necessarily incorrect. I know with the uncertainty there are many who are foregoing hiring additional employees. they don't have time to learn the secrets of the law. They know they can't have too many employees so they work harder and wait for more information.

The Administration knows they hold all the cards. The law is written giving the Administration complete power over health care. All the Legislature can do is control the purse and we see how well that is working.

So why would an employer hire additional personnel if they don't understand the rules? It would take an enlightened employer to start cutting back hours.

With the obfuscation of information and the incorrect and politically slanted media reports an employer has no where to gain the necessary information to make informed decisions. Not only that, they are running a business not trying to figure out how to play a game that the rules haven't been written for.

I do not think most employers will cut staff now because of lack of information. Economics demands information necessary to make informed decisions.

David R. Henderson writes:

I didn't "acknowledge" it because I had one narrow goal with this post: to answer Brad DeLong's quandary about why economists might expect the # of part-time jobs to increase. He didn't understand why, based on basic theory, one might expect that. I showed why. I haven't had time to look at the data.

MingoV writes:

@Megan McArdle: "This is precisely to prevent the sort of gaming you describe."

How is it gaming the system to reduce the number of full-time workers and increase the number of part-time workers? That's been done for years when the corporate share of benefits for full-time employees became onerous. We now have a federal definition of full-time employment (that, in regards to health insurance, overrides state definitions), and a strange formula that forces some businesses to pay for health insurance even if none of its employees are full-time (e.g.: 100 employees working 20 hours per week).

It seems to me that the federal government is gaming the system.

ThomasH writes:

While a health insurance law would be better without an employer mandate (would removes one little triangle) what is the actual loss from moving a few people from full time to part time employment and a few other from no-time to part time employment or moving a few full time employees to becoming a half time employees with two jobs? I just can't see this quirk as very damming.

john hare writes:


As an employer myself, I find it far better to have one employee making a good wage than two making a poor wage with corresponding poor attitude. It is very difficult to build a profitable team around poorly motivated part timers. People are not interchangeable robots in which two qualified and motivated people are as easy to train, schedule, and retain as the one person that is making twice as much income.

This quirk is very damning to employers that need skilled and motivated staff. It is also very damning to skilled and motivated people that now need two or more jobs to make the same income.

mike davis writes:

Even if we see an increase in part time work at some point, we won’t know whether this mostly the result of employers seeking to avoid hiring full time workers or workers seeking to avoid full time work. Most part time workers will be eligible for substantial subsidies when they buy through the exchanges. This makes part time work very attractive. Casey Mulligan set out the numbers in a NYT piece last July.


You might think this is good thing. Lots of people prefer part time work and some of them—hard to know how many—stay full time because they need health insurance. Right now the private market for insurance is not a good alternative for them because of the distortions in the current system. (Not just the tax distortions, the private market is a mess for lots of other reasons as well.) More generally, you might take the view that Obamacare is good because (a) the insurance exchanges create a viable alternative to employer provided insurance and (b) the subsidies mitigate the distortions created when employer provided insurance has a tax advantage.

OTH…The subsidies also create disincentives for seeking full time work. In fact this is really a serious problem with Obamacare that I think we need to spend much more effort explaining. The subsidies are, quite simply a huge increase in the marginal tax rates imposed on people with relatively modest incomes. If Warren Buffet is really concerned about tax equality, he shouldn’t compare himself and his secretary, he should compare his secretary to day care workers and home health employees. The first steps up the ladder leading from working poor to middle class are really hard to navigate. Under Obamacare those first few steps won’t even be that rewarding.

Brian writes:

Ms. McArdle:

This is not quite right. The "full time equivalent employee" is determined by adding together all the hours of your part time employees and dividing by forty, and then adding to the number of your full time employees. This is precisely to prevent the sort of gaming you describe.

The following article has the FTE calculation just a bit different than the one you stated above.

Planning for "play or pay" (June 2013)


The assessable payments under Sec. 4980H apply to “applicable large employers,” employers that in the prior calendar year employed on average at least 50 full-time employees or full-time equivalent employees (FTEs). For each month in the prior calendar year, the employer adds the number of full-time employees (employed an average of at least 30 hours per week or 130 hours per month) plus FTEs.

To obtain the number of FTEs, the employer determines the aggregate number of hours of service performed in each calendar month by all non-full-time employees (up to 120 hours for any employee) and divides that number by 120 (retaining any fraction for the month but, after adding to full-time employees for each month and averaging the monthly totals for the year, rounding down to a whole number). Although this determination is made on an annual lookback basis, under the proposed regulations’ transitional rule for 2014, employers may use a period of at least six consecutive months in calendar 2013. An employer is not an applicable large employer if its full-time employees and FTEs exceeded 50 for no more than 120 days during the calendar year and the employees in excess of 50 who were employed during that period were seasonal workers.

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